Skift Take

Checked bag fees are stabilizing and travelers are getting waivers by using co-branded airline credit cards. As demand for business travel rises, change fees are almost generating as much revenue as bag fees, although change fees often fly under the radar.

One of the most interesting data points was that carriers generated nearly as much revenue from reservation change fees as they did from the more-publicized checked-bag fees.

Bag fee revenue from 26 scheduled airlines actually declined in the fourth quarter of 2013, falling 3.18% to $797.1 million compared with the same period a year earlier. This bag fee revenue accounted for 1.6% of airlines’ total operating revenue.

But change fees, which most airlines charge when passengers want to alter their flights, were not too far behind bag fees.

U.S. airlines generated $674.7 million in change fees in the fourth quarter of 2013, and that amounted to a 10% increase compared with the December quarter a year earlier.

And, while bag fees accounted for 1.6% of airlines’ total operating revenue in the fourth quarter of 2013, change fees were right up there at 1.4%.

A year earlier, in the fourth quarter of 2012, bag fees accounted for 2.2% of U.S. airlines’ total operating revenue, and change fees stood at 1.6%.

Here’s a look at U.S. airlines’ Q4 2013 financials, including net and operating incomes, and fees.

“United and Delta had the highest change fees per passenger at $5.43 and $5.10, and both levy $300-$400 fees for some international tickets,” MileCard states in a blog post. “They offer the most international flights among U.S. carriers, making their travelers more exposed to these high fees.”

MileCards notes that U.S. airlines’ checked bag fees totalled $3.3 billion in 2013, and were down 3% from a record $3.4 billion in 2012.

Bag fees per passenger have remained relatively stable over the last four years, MileCards states, and the decline in bag fee revenue is likely due to waiver of first checked bag fees by carriers such as United, American and Delta when travelers use their “primary mile-earning credit cards.”

“Airlines have plateaued when it comes to checked bag fees,” MileCards director Brian Karimzad tells Skift. “Domestic fees have stayed flat at $25 for almost five years now, and credit cards offer an out for many.”

Airlines are getting more recent growth from seat upgrades either to a better seat in economy or to first class,” Karimzad adds. “These don’t show up in DOT fee statistics, making the share from checked bag fees and change fees look smaller.”

Carry-on bag fees are a next step, though it’s for now limited to the ultra low cost carriers Spirit, Allegiant, and Frontier,” he adds.

Jay Sorensen of IdeaWorks Co. agrees that bag fees are being paid by airline partners for their co-branded credit cards.

Sorensen doesn’t put a lot of faith in the bag fee numbers, though, because the DOT doesn’t audit them.

“Quite frankly, the DOT does not audit these numbers and thus are prone to fluctuation for unknown reasons and reporting errors,” Sorensen says.

It seems clear that fees for preferred seats are becoming an increasingly important part of the airline ancillary revenue mix, although these are not currently reported to the DOT in categories that are easily broken out.